British Airways parent IAG warned of a fall in annual profits citing a pilots strike and weaker performance by budget carriers Vueling and Level. Photo:: AP

INTERNATIONAL – British Airways parent IAG on Thursday warned of a fall in annual profits citing a pilots strike and weaker performance by budget carriers Vueling and Level, hitting shares in Europe’s third largest airlines group.

Recurring operating profit will fall €215 million (R3.5 billion) to €3.27 billion this year, IAG said, after strikes at British Airways grounded thousands of flights earlier this month.

A September 9 to 10 strikes dealt a heavy blow to British Airways, still reeling from a third major computer failure in two years, which disrupted operations in August.

Pilot unions called off a second strike this week but said that industrial action may resume unless progress is made on a pay dispute.

“Any further industrial action will additionally impact IAG’s full-year 2019 operating profit,” the group cautioned.

The setbacks at IAG add to strains across the industry – including weakening demand, higher fuel costs and low-cost competition – factors that contributed to travel group Thomas Cook’s collapse and pose a threat to second-tier airlines.

Further bankruptcies among competitors will help to support IAG’s growth next year, group chief executive Willie Walsh told analysts.

“A number of weaker airlines are either disappearing or significantly reducing their capacity,” he said, predicting a “slightly softer” environment in 2020.

IAG now expects passenger unit revenue to be slightly lower before currency effects, with full-year capacity growing by about 4 percent, less than the 5 percent previously planned.

The group nevertheless aims to expand into the gap left by Thomas Cook at London’s Gatwick airport by acquiring take-off and landing slots sold off under bankruptcy or reallocated by aviation authorities, Walsh said.

“We clearly see Gatwick as an opportunity for us for growth purposes,” he said.

The BA strikes accounted for 133 million euros of the earnings hit, IAG said, with a further 33 million stemming from industrial action by Heathrow airport staff and 45 million from weaker bookings at Vueling and Level.

Level, launched two years ago as a low-cost long-haul carrier, has suffered along with other airlines with exposure to crisis-hit Argentina.

British Airways, whose offer of a 11.5 percent pay rise over three years has been rejected by pilots, has yet to resume talks with their unions, IAG said.